CERs are part of the Clean Development Mechanism (CDM) initiated by the United Nations Framework Convention on Climate Change (UNFCCC), which allows emission-reduction projects in developing countries to earn CER credits, each equivalent to one tonne of carbon dioxide. These CERs can be traded and sold, and used by industrialised countries to meet a part of their emission reduction targets under the Kyoto Protocol. Under the CDM, emission-reduction (or emission removal) projects in developing countries can earn certified emission reduction credits. Countries listed in Annex I (developed) of the UNFCCC can purchase CDM credits. Non Annex-I countries (developing) can host CDM projects. And that's not all. While investors profit from CDM projects by obtaining reductions at costs lower than in their own countries, the gains to the developing country host parties are in the form of finance, technology, and sustainable development benefits. Projects are related to energy efficiency, transport and methane recovery, among others.
India on the green path
With Indian firms evidently entering the domain in a big way, carbon trading seems to be the way forward for India Inc to contribute to a reduction in GDP emission intensity by 20% by the year 2020. The sector is estimated to be over R1,000 crore in size. India currently has 15% share in the global CER space, while China has 54%. By 2012, this is expected to rise to 16% with 444 million CERs for India. But given that China has bagged more than a lion's share, India still has a lot of catching up to do.
However, on the flip side, India still has a lot of potential in a sector that is now beginning to be taken really seriously by businesses. Not only businesses, but governments too are looking at carbon credits as an exciting opportunity. Himachal Pradesh has already taken a lead by signing a pact with the World Bank for harnessing carbon credits to generate carbon revenue amounting to R20 crore for 20 years under "Bio Carbon Projects" in 10 districts of the state.
As Arvind Sharma, director, advisory-climate change and sustainability, KPMG, explains, If you consider the price of one CER to be 12-15 euros, it means till date India has already earned over $1,200 million through carbon credits. The CDM has been a great success to build up the institutional framework for a carbon market in developing countries, including monitoring, reporting and verification and provide a carbon signal in these countries. It has also leveraged considerable investment in developing countries.
The importance of carbon credits for a developing economy, and especially India, is evident from the fact that those in the policy circles, as well as experts on the issue of climate change, are of the view that carbon needs to be "priced" in order to reduce emissions.
On the eve of the inauguration of the recently held Delhi Sustainable Development Summit (DSDS) 2012 in New Delhi, The Energy and Resources Institute (TERI) director general and noted climate change expert Dr RK Pachauri said, "Place a price on carbon if you want to reduce emission of carbon dioxide. There are a number of issues to be covered, as it raises institutional issues and issues of equity and ethics.
In India, the oil and gas sector has the highest number of carbon credits, followed by infrastructure, biomass, among others. For instance, construction and power company Lanco earned two lakh CERs in 2010 and sold all of them to European carbon traders and intends for another 1.8 lakh CERs this year. Same is the case with Jindal Steel and Power, which also had some CERs in the past and is also looking at getting its 24 mw wind power plant in Maharashtra registered for CDM.
With 1,600 projects registered for CERs in India, most of these projects come from the biomass and energy efficiency sectors. India has 622 CDM projects registered with the UNFCCC.
India has two commodity exchanges trading in carbon credits. Multi Commodity Exchange (MCX) engages in futures trading in carbon credits. The National Commodity and Derivatives Exchange (NCDEX) also started futures contract in carbon trading for delivery in 2008.
Reports say 40% of the CDM projects get dropped at the UN level, 30% at the government level and 10-20% at the validation levels itself.
A sagging global market
However, there have been concerns over a sagging carbon credit market over the past few months, given the confusion and lack of clarity over the future of global policies and frameworks for the mitigation of climate change. Despite a last-minute deal worked out at the Durban climate talks in December 2011, CER prices have been lingering around rock bottom.
Indian companies dealing in CERs have been looking at climate change dialogues shaping up with bated breath, as there is complete uncertainty over future commitments, especially by the developed nations, over the future of the Kyoto Protocol. The economic crisis in Europe has also added fuel to fire as Europe is a prominent market for CERs, given the US's own woes and its lack of commitment to the Kyoto Protocol, as it never even got ratified in that country. But hope was still renewed in Durban as the Conference of Parties salvaged the talks and bestowed a new lease of life to CDM.
As per the UNFCCC, the rate of technology transfer from developed to developing nations has declined over the years, affecting CDMs. The decline has been steeper than the overall average in Brazil, China and India. Initially, China had a rate of technology transfer higher than the average for all countries, but the rate is now substantially lower. India has consistently had a rate of technology transfer lower than the average for all countries. The rate of technology transfer for other host countries has been much higher than the overall average and has declined only slightly.
Several factors contribute to these results. First, as more projects of a given type are implemented in a country, the rate of new technology transfer declines, since local technology access has been created through previous projects. Second, the transfer of technologies used by CDM projects appears to have been happening through other channels as well, for example via licensing, foreign direct investment, R&D networks, mergers, acquisitions and the recruitment of foreign experts.
Finally, changes in the mix of registered projects may affect the rate of technology transfer, since each project type has a different frequency of technology transfer.
Kerala & karnataka
Kerala and Karnataka took the lead in rolling out the Bachat Lamp Yojana (BLY) last year. BLY is a clean development mechanism scheme that is on course to become the world's largest carbon credit project. Other states like Punjab, Maharashtra, Uttar Pradesh, Rajasthan, Orissa and Himachal Pradesh are at various stages of rolling out this Bureau of Energy Efficiency scheme. It is the biggest programme of activities of its kind in the world, registered under the UNFCCC (United Nations Framework Convention on Climate Change).
Under BLY, CFL (compact fluorescent lamp) suppliers sell lamps to households at R15 a piece, which is hardly 15-20% of the retail price and register it as a CDM project. The balance cost has to be recovered from the sale of carbon credits as a result of emissions.
Delhi followed Kerala and Karnataka by launching the scheme in October 2011.
A R365-crore afforestation plan is perhaps the first public sector project in the country to have been registered under the The UNFCCCs clean development mechanism. The project, covering an area of 4,000 hectares across177 gram panchayats in 10 districts, aims at protecting watersheds, improving livelihoods and generating carbon revenue for the communities through afforestation. The broad objective of the project is to sequester greenhouse gases by expanding forestry plantations on mostly degraded lands apart from creating a carbon sink. The ministry of rural development has adopted this project as a model for replicating elsewhere.
Apart from imposing a complete ban on use of polythene, the state has also launched a buyback scheme for plastic waste from urban local bodies. The state also took a lead in using plastic in construction of roads. Last year, about 30 tonnes of plastic waste was used for tarring 42 km of roads.
In 2009, Gujarat became the first state in the country and the fourth state/province in the world to have a department for climate change (DCC). Among the many objectives of the DCC, earning carbon credits has been listed as one of the top priorities. As many as 39 clean energy initiatives of energy and petrochemicals, urban transportation, forest and environment, rural development and industry and mining were brought under this department. Another major and ambitious project is to carry out a study on the impact of global warming along the states 1,600 km coastline.
Other plans include a new solar policy with a target to set up 500 mw of solar plants, to raise the wind energy capacity from 1,300 mw to 8,000 mw, deep irrigation systems and interlinking rivers of the state.
Delhi Metro has been certified by the United Nations as the first metro rail-based system in the world to get carbon credits because of using regenerative braking system in its rolling stock. DMRC has earned the carbon credits by using regenerative braking system in its trains that reduces 30% electricity consumption. Whenever a train applies regenerative braking system, the released kinetic energy starts a machine known as converter-inverter that acts as an electricity generator, which supplies electrical energy back to the overhead electricity (OHE) lines. This regenerated electrical energy that is supplied back to the OHE is used by other trains in the same service line. DMRC can now claim 4 lakh CERs for a 10-year crediting period beginning December 2007, when the project was registered by the UNFCCC. This translates to R1.2 crore per year for 10 years.
The Director General of Civil Aviation (DGCA) recently brought out guidelines under which airport operators and airlines will have to measure and monitor their emissions and submit the data annually to the DGCA. The sum of these carbon footprints will also help develop a national carbon inventory for the civil aviation sector. The provisions of the circular shall be applicable to airports having annual aircraft movements more than 10,000.
Authorities have divided the emissions into aviation (which includes release from the aircraft) and airport (includes discharge from ground support equipment, power generation sources and ground transport). All domestic airlines will be required to file the details.
The sectors greenhouse gases emission is relatively small at present, in the order of 2-3%.
The Telecom Regulatory Authority of India recently asked all telecom service providers to declare the carbon footprint of the network operations to TRAI twice a year. They also must aim to reduce their greenhouse gas emission targets by 5% in the current fiscal, with a 17% reduction target for 2019. The directives also make it mandatory that 20% of all urban towers must use hybrid power by 2015. By 2020, the share of hybrid powera mix of renewable energy technologies and grid powerbe increased to 75% and 33% in rural and urban areas, respectively.
The recommendations also state that all telecom products, equipment and services in the telecom network should be certified Green Passport (GP) by 2015.
The recommendation also state that service providers should evolve a carbon credit policy in line with carbon credit norms.
The Tirupati Temple in Andhra Pradesh is trading in carbon credits after taking up several green initiatives. These include creating a forest cover around the temple, solar power for its community kitchen and wind turbines. The temple city has been identified as a future 'low-carbon footprint city' by European Aid and Development, which works under the European Commission.
Since July 2011, the Railways have also allowed users to replace their e-tickets printout with the screenshot of an e-ticket on their mobile phones, tablets or laptops. With this measure IRCTC estimates that close to 3 lakh sheets of A4 size paper will be saved per day.